Block size limit controversy

Originally, Bitcoin's block size was limited by the number of database locks required to process it (at most 10000).
This limit was effectively around 500-750k in serialized bytes, and was forgotten until 2013 March.
In 2010, an explicit block size limit of 1 MB was introduced into Bitcoin by Satoshi Nakamoto. He added it hidden in two commits[1][2][3] in secret. This limit was effectively a no-op due to the aforementioned forgotten limit.

In 2013 March, the original lock limit was discovered by accident (Bitcoin Core v0.8.0 failed to enforce it, leading to upgraded nodes splitting off the network).
After resolving the crisis, it was determined that since nobody knew of the limit, it was safe to assume there was consensus to remove it, and a hardfork removing the limit was scheduled and cleanly activated in 2013 May. From this point forward, the 1 MB limit became the effective limiting factor of the block size for the first time.

The limit was not changed again before 2017 and was believed to require a very invasive hard fork to change. As transaction volume increased with widespread Bitcoin adoption, increasing the limit became subject to heavy debate in 2015. To prevent Bitcoin from temporarily or permanently splitting into separate payment networks ("altcoins"), hard forks require adoption by nearly all economically active full nodes.

Damage to decentralization

Larger blocks make full nodes more expensive to operate.

Therefore, larger blocks lead to less hashers running full nodes, which leads to centralized entities having more power, which makes Bitcoin require more trust, which weakens Bitcoins value proposition.

Bitcoin is only useful if it is decentralized because centralization requires trust. Bitcoins value proposition is trustlessness.

The larger the hash-rate a single miner controls, the more centralized Bitcoin becomes and the more trust using Bitcoin requires.

Running your own full node while mining rather than giving another entity the right to your hash-power decreases the hash-rate of large miners. Those who have hash-power are able to control their own hash power if and only if they run a full node.

Less individuals who control hash-power will run full nodes if running one becomes more expensive[7].

History

On October 3, 2010, Jeff Garzik published a patch that immediately increases the block size to 7MB.[8] The patch had no users, but it was the earliest attempt at increasing the block size through a hardfork. Satoshi and theymos immediately said not to implement it, as it would make the user's node incompatible with the network.[9] This is the oft-cited post which many people claim proves Satoshi intended for the blocksize to increase. English, however, does not work that way. Satoshi spoke conditionally, not intentionally.[9]

BIP 100

Change block size limit based on miner votes, but don't leave the range (1MB, 32MB) without a softfork or hardfork respectively.

Bitcoin XT

Bitcoin XT was an alternative client that became notorious when it adopted BIP 101, which would direct an increase to 8 MB after both January 11, 2016 has passed and 75% of miners are in support, followed by doubling of the limit every two years with the size increasing linearly within those two year intervals.

XT failed to gain enough support to activate the hardfork, leading to Mike Hearn's resignation.

Bitcoin Classic

Segregated Witness

The final solution deployed was Segwit, increasing the block size limit to 2-4 MB without a hardfork.

Entities positions

Positions below are based on a suggested fixed block size increase to 20MiB. Positions against these larger blocks do not necessarily imply that they are against an increase in general, and may instead support a smaller and/or gradual increase.

Yes: "For the record I am not aware of a single person who has said they do not agree with scaling Bitcoin. Changing a constant is not the hard-part. The hard part is validating a plan and the other factors that go into it. It's not a free choice it is a security/scalability tradeoff. No one will thank us if we "scale" bitcoin but break it in hard to recover ways at the same time." [37]

No"I strongly urge that we return to the existing collaborative constructive review process that has been used for the last 4 years which is a consensus by design to prevent one rogue person from inserting a backdoor, or lobbying for a favoured change on behalf of a special interest group, or working for bad actor" - Dr. Adam Back[38]